European Stocks Climb for Fifth Week as ECB Cuts Rates

By Namitha Jagadeesh -
Nov 8, 2013

Stocks in Europe posted a fifth week
of gains, the longest winning streak this year, as the European
Central Bank unexpectedly lowered its key interest rate and U.S.
economic growth and jobs data beat forecasts.

Commerzbank AG posted the largest advance in three months
after reporting third-quarter profit that surpassed analysts’
estimates. ArcelorMittal surged the most in almost two years as
earnings increased at the world’s biggest steelmaker. Ryanair
Holdings Plc slid 5.6 percent after the budget airline forecast
its first annual income decline in five years. Finmeccanica SpA
dropped 4.8 percent after cutting its full-year outlook.

The Stoxx Europe 600 Index added 0.4 percent to 322.72 this
past week. The benchmark measure, which climbed to the highest
level since May 2008 on Nov. 6, has risen 15 percent this year,
on course for the biggest annual advance since 2009 as central
banks globally took steps to support the economic recovery.

“The ECB rate cut is good news, not only because of easier
money but also because it should push the euro lower,” said
Pierre Mouton, who helps oversee $6 billion as a portfolio
manager at Notz, Stucki & Cie. in Geneva. “I’m very happy with
the performance of European equities so far this year and we
still prefer it for valuation reasons.”

ECB Cut

The ECB on Nov. 7 trimmed its benchmark interest rate to
0.25 percent from 0.5 percent. The reduction was forecast by
just three of 70 economists in a Bloomberg News survey, with the
rest predicting no change. The ECB expects interest rates to
remain at the current level or lower for an extended period of
time, President Mario Draghi said at a press conference after
the announcement.

The Bank of England maintained its key interest rate at 0.5
percent and kept its asset-purchase target at 375 billion pounds
($603 billion), matching the median forecast of economists
surveyed by Bloomberg.

U.S. payrolls climbed by 204,000 in October, following a
revised 163,000 gain a month earlier, Labor Department figures
showed yesterday. The median forecast of economists surveyed by
Bloomberg had called for an increase of 120,000. The rate of
unemployment rose to 7.3 percent from an almost five-year low.

U.S. Economy

A Commerce Department report on Nov. 7 showed the world’s
biggest economy expanded at a 2.8 percent annualized rate in the
third quarter after a 2.5 percent gain in the previous period.
That exceeded the 2 percent increase predicted by analysts in a
Bloomberg survey. The Fed last week said it needs to see more
evidence of sustained economic improvement before slowing the
pace of its $85 billion monthly bond purchases.

ArcelorMittal climbed 11 percent, the best weekly
performance since December 2011, as the steelmaker said earnings
before interest, taxes, depreciation and amortization rose to
$1.71 billion in the third quarter. That surpassed the $1.53
billion average analyst projection.

International Consolidated Airlines Group SA gained 6.5
percent after saying it expects full-year operating profit of
about 740 million euros, compared with a previous forecast that
it would at least equal 2011’s 485 million euros. The British
Airways parent said third-quarter operating profit before one-time items rose to 690 million euros from 270 million euros a
year earlier.

Ryanair Drops

Ryanair tumbled 5.6 percent in Dublin after Europe’s
largest discount airline forecast full-year profit after tax of
500 million euros to 520 million euros. Ryanair had said in
September net income would probably be at the lower end of a
range between 570 million euros and 600 million euros, and
warned it may be even lower if fare yields continued to worsen.

Finmeccanica dropped 4.8 percent after the Italian arms
company said it expects a cash outflow of 350 million euros to
450 million euros in 2013, having previously forecast an inflow
of 100 million euros. Full-year earnings before interest, tax,
and amortization will be 5 percent to 10 percent lower than its
1 billion-euro target, the company said.

Inmarsat Plc tumbled 6.6 percent as the world’s biggest
provider of maritime-satellite services reported third-quarter
sales that missed analysts’ estimates and said a difficult
outlook for its U.S. government business will hurt 2014
operating profit.